The gradual decline of many private sector companies providing pensions for employees, combined with government plans for a 2012 pensions initiative that many industry insiders predict will be inadequate, may lead to a situation where large portions of the population are strapped for cash in their retirement.
Figures published by the pensions consultancy part of Deloitte in July showed that the FTSE 100 companies (i.e. the top 100 companies on the London Stock Exchange) are, between them, some £300bn short on their pension provisions for employees.
The situation is building, and has again emphasised the wisdom of consulting your financial adviser to investigate setting up a personal pension scheme.
“This could be a demographic time-bomb,” said Gareth Flanagan, independent financial adviser at Principle First.
“It used to be the case that, for every two people working, there was one person retiring. In just a few years that could be reversed, with 2 people retiring for every one person working.”
“The era of the ‘nanny state’ is over. You are going to have to provide for yourself. Britain has always had the best pension schemes in Europe, but now, something must be done to encourage people to save on their own for their retirement,” he said.
Flanagan noted that, while government has traditionally encouraged pensions saving and retirement planning, it now seems to be sending a mixed message. Politicians are taking a hard look at the cost of sustaining tax relief on pensions contributions, long the mainstay of the British pensions system.
“The government is already tinkering at the edges. The last budget limited tax relief t0 20% for high earners on salaries over £150,000, where they would have normally received tax relief at 40% before,” Flanagan said.
There is nothing copper-fastened about tax relief on pensions, in the current climate of aggressive belt-tightening in government spending. This major incentive underpinning employee motivation to save for retirement could well have only a few more years of life, and there are precedents a-plenty to show how such incentives can quickly disappear.
“There used to be tax relief on mortgages, and a tax relief of 15% on life policies. Both are now gone.
“With regard to tax relief on pensions saving, it may well be ‘buy now, while stocks last’”, Flanagan said.
